If you’re forming an LLC, you’ve probably come across the word “bylaws” and wondered whether it applies to you. It’s a common mix-up: people often use “bylaws” loosely to mean any set of rules for running a business. Below, we explain why LLCs don’t use bylaws, what an operating agreement does instead, and what to put in yours.
Key takeaways
- LLCs don’t use bylaws. Bylaws are for corporations.
- An operating agreement is the LLC’s governing document and does a similar job.
- Some states require an operating agreement; others don’t, but having one is strongly recommended.
- An LLC that elects S corp or C corp taxation is still an LLC, so it still uses an operating agreement.
- If someone asks your LLC for “bylaws,” they’re most likely asking for your operating agreement.
Why LLCs don’t use bylaws
Bylaws are built for the corporate structure, which revolves around a board of directors, officers, shareholders, and stock. LLCs work differently. They have members instead of shareholders, no stock to issue, and a more flexible management structure. An LLC can be run directly by its members (member-managed) or by designated managers (manager-managed), and none of that maps neatly onto a board-and-officers framework.
So when someone tells an LLC owner they need bylaws, what they almost certainly mean is that the LLC needs an operating agreement. The two terms get used interchangeably in casual conversation, but they are not the same document and they don’t serve the same legal structure.
What LLCs use instead: the operating agreement
An operating agreement is the internal document that governs an LLC. It covers who owns the business, how it’s managed, how profits are shared, and what happens when things change, such as a member leaving or the business closing.
In practical terms, it’s the LLC’s equivalent of corporate bylaws. It answers the same basic questions about how the business is governed and who can make which decisions, but it’s built for the LLC structure.
Is an operating agreement required?
It depends on your state. Some states require LLCs to have an operating agreement, while others don’t. Even where it isn’t required, there are good reasons to have one:
- It replaces state default rules. Without an operating agreement, your LLC is governed by your state’s default LLC rules, which may not reflect how you want the business to run.
- It helps support liability protection. Documenting how the LLC operates helps reinforce the separation between you and the business.
- It helps prevent disputes. For multi-member LLCs, clear rules on profits, decisions, and exits can head off costly disagreements.
- Others may ask for it. Banks, lenders, and some state agencies may ask to see your operating agreement.
An operating agreement generally isn’t filed with the state. You keep it with your LLC’s records and share it when someone needs to see it.
What to include in an LLC operating agreement
A well-drafted operating agreement typically covers:
- Ownership percentages and membership interests
- Capital contributions from each member
- How profits and losses are allocated and distributed
- Whether the LLC is member-managed or manager-managed
- Voting procedures and which decisions require unanimous consent
- Rules for transferring membership interests and handling buyouts
- What happens if a member leaves, becomes disabled, or dies
- How disputes between members are resolved
- Dissolution procedures if the business closes
- How the agreement itself can be amended
Single-member vs. multi-member LLCs
A single-member LLC still benefits from an operating agreement, because it documents that the business is separate from you, which matters for liability protection and can help when opening a bank account.
For multi-member LLCs, it’s even more important. Without a clear agreement, disagreements over profits, decision-making authority, or what happens when a member exits can turn into expensive legal problems with no clear framework for resolving them. A business attorney should draft or review the agreement, especially when several members are involved.
Operating agreement vs. bylaws vs. articles of organization
These three documents are easy to mix up. Here’s how they compare:
| Operating agreement | Bylaws | Articles of organization | |
|---|---|---|---|
| Used by | LLCs | Corporations | LLCs |
| Purpose | Sets internal rules for ownership, management, and profits | Sets internal rules for the board, officers, and shareholders | Creates the LLC with the state |
| Filed with the state? | Generally no | Generally no | Yes |
| Public record? | Generally no | Generally no | Yes |
In short, the articles of organization create your LLC, and the operating agreement explains how it runs.
Do LLCs taxed as S corps or C corps need bylaws?
No. An LLC that elects S corp or C corp tax treatment with the IRS is still legally an LLC. The election changes how the business is taxed, not how it’s structured or governed. The members are still members, and the governing document is still the operating agreement.
What may need to change is what’s inside that agreement. S corp tax treatment comes with specific requirements around how owners are compensated, how distributions are handled, and who can own the business, and these may need to be reflected in the operating agreement. Before or after making a tax election, it’s worth having a business attorney and CPA review the agreement to make sure it fits your new tax treatment.
What to do if someone asks for your LLC’s bylaws
Banks, lenders, and other businesses sometimes ask an LLC for its “bylaws,” usually out of habit. In most cases, you can respond by providing your operating agreement and explaining that it’s the LLC’s governing document. If they need proof that the LLC exists, they may also want your articles of organization or a certificate from your state.
Getting your operating agreement in place
The easiest time to create an operating agreement is when you form your LLC, before questions about ownership or decision-making come up. When you form your LLC with Tailor Brands, you can choose services such as an operating agreement, a registered agent, and an EIN, depending on your plan, so your governance documents can be set up at the same time as the business itself.
Frequently asked questions
No. LLCs don’t use bylaws, which are a corporate governance document. The equivalent document for an LLC is an operating agreement, which covers membership, management, and profit distribution.
An LLC can call its internal rules whatever it likes, but the document that governs an LLC under state law is the operating agreement. Using the standard term helps avoid confusion with banks, lenders, and state agencies.
No. An LLC that elects S corp tax treatment is still legally an LLC and still uses an operating agreement. The tax election changes how the IRS treats the business, not its legal structure.
Your LLC falls back on your state’s default LLC rules, which may not match how you want the business to run. For multi-member LLCs, the lack of a clear agreement can lead to serious disputes over profits, decision-making, and ownership transfers.
Generally, no. An operating agreement is usually an internal document you keep with your business records. The articles of organization are what you file with the state to form the LLC.
No. Articles of organization are the public formation document filed with the state to create the LLC. An operating agreement is the internal document that defines how the LLC operates.